In re Sibley, Bankruptcy No. 86-40303-WOR
| Decision Date | 10 March 1987 |
| Docket Number | Adv. No. 4-86-4062.,Bankruptcy No. 86-40303-WOR |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Massachusetts |
| Parties | In re Jeffrey K. SIBLEY, Debtor. Albert J. BROWN and Theresa M. Brown, Plaintiffs, v. Jeffrey K. SIBLEY, Defendant. |
Charles V. Olchowski, Greenfield, Mass., for plaintiffs.
Sebastian J. Ruggeri, Greenfield, Mass., for defendant (debtor).
This case comes before the Court on the motion of the debtor, Jeffery K. Sibley (the "Debtor"), to dismiss the complaint of Albert and Theresa Brown (the "Claimants") to determine the dischargeability of a debt. The Debtor asserts two grounds for dismissal: (1) the Claimants did not file their complaint within the sixty day time period allowed by Bankruptcy Rule 4004(a); and (2) the Claimants failed to state a claim upon which relief can be granted. Bankr.R. 7012(b); Fed.R.Civ.Pro. 12(b)(6). We will deal with each defense in turn.
Bankruptcy Rule 4004(a) states that complaints to determine dischargeability "shall be filed not later than 60 days following first date set for the meeting of creditors held pursuant to 11 U.S.C. § 341(a)." The § 341 meeting was set for July 9, 1986, and was in fact held on that day. Sixty days from the § 341 meeting, calculated according to Bankruptcy Rule 9006(a), was September 8, 1986. The Claimants filed their complaint on September 9, 1986. The notice of § 341 meeting, sent out to all creditors and the Debtor by the clerk of court, erroneously set the final date for creditors to object to discharge or the dischargeability of debts as September 9, 1986. The clerk has the responsibility to set the § 341 meeting date and the date for filing on objections to dischargeability under Local Bankruptcy Rules 23(A)(1) & (7).
The Debtor argues that, regardless of the clerk's error, Bankr.R. 4004(a) sets an absolute bar to complaints after the 60 day time period. He asserts that the cutoff date of complaints is a "substantive" right, a right which cannot be abridged by local rules. The Claimants argue that they reasonably relied on the notice from the clerk's office, and should not suffer dismissal after they complied with the clerk's notice.
The Debtor's argument implies that this Court purposefully extended the deadline for filing complaints in its notice to creditors. The clerk's office, however, was merely observing its duties under Bankr. R. 4004(a) and under Local Rules 23(A)(1) & (7), which implement Rule 4004(a)'s requirement. In the course of fulfilling those duties, the clerk made an unfortunate error and set the wrong bar date. The Debtor and all creditors received the notice with this errant date included in it. The issue therefore becomes: between two equally innocent parties, who should suffer the consequences of the clerk's mistake?
This question raises curious problems under the structure of the Bankruptcy Rules. Bankruptcy Rules 4004(a) & (b) set out a clear scheme for time limits on filing dischargeability complaints and for extending that time. Bankr. R. 4004(b) is emphatic on the need for filing a motion to extend time before the bar date expires, and on the need for notice and hearing before such an extension. Bankruptcy Rule 9006(b)(3) reemphasizes Rule 4004's rigid procedure by providing that extensions of time can be granted by the court "only to the extent and under the conditions stated" in Rule 4004. These procedures, however, are primarily directed at situations where failure to act within a prescribed time period is due to the neglect or delay of the parties themselves. Here there is not culpability in that regard; the blame for delay rests squarely on the Court's and clerk's shoulders.
Fortunately, a district court in this circuit has mulled over the situation and ruled that the bankruptcy court, when confronted by a late dischargeability complaint due to an error in its clerk's notice, may use its inherent equitable powers and allow the complaint to stand if equity would be served by ignoring the technical tardiness. Francis v. Riso (In re Riso), 57 B.R. 789 (D.N.H.1986). The Riso court, on similar facts as this case, held that, by allowing the complaint to remain, the bankruptcy court was correcting an injustice caused by the clerk's mistake. Riso, 57 B.R. at 793. Furthermore, allowing the creditor to maintain his objection to discharge did not create a substantive right, but merely allows the creditor to exercise his substantive rights under 11 U.S.C. § 727(a)(1). Id.
We find no distinction between the facts in this case and the facts in Riso. Between the Debtor and the Claimants, the Claimants will suffer the greater harm if the Court rules against them. If one party must bear a loss, it should be the Debtor because he had notice of the erroneous date and had greater incentive to examine and correct the notice. It does not serve the Debtor well in equity to object to the complaint after the Claimants have reasonably relied on and complied with the erroneous notice. Therefore, pursuant to our inherent equitable powers, we hold that the Claimants' complaint was validly filed with this court.
Count I of the complaint contains the following allegations:
The Claimants assert that, as a result of the Debtor's actions, the $2500 debt is nondischargeable under 11 U.S.C. § 523(a)(4).
Section 523(a)(4) excludes from discharge "any debt ... for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny." Rule 8(a)(2) of the Federal Rules of Civil Procedure, adopted for adversary proceedings by Bankr.R. 7008, states that a claim for relief "shall contain ... a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.Pro. 9(b), adopted by Bankr.R. 7009 for adversary proceedings, requires that
The Claimants' claim under Count I fails to even meet the threshold test under Federal Rule 8(a)(2). The facts alleged here simply do not establish a claim under § 523(a)(4), nor do they give the Debtor enough notice to prepare a defense to the claim. No fiduciary relationship is evident from the facts alleged, even if the truth of all the facts is assumed and all favorable inferences are given to the Claimants' facts. Nor do the Claimants attempt to suggest a theory of fiduciary responsibility from the facts. The facts alleged contradict any claim of larceny or embezzlement, because Count I states that the Debtor acknowledged that he owed the money to the Claimants, and in fact wrote a check purporting to return the money. Even if we infer that the Debtor wrote the check with the knowledge that it would bounce, the inference still does not establish a claim for larceny in the face of the Debtor's acknowledgement of the Claimants' ownership of the money.
Count II of the Complaint presents a different situation. The Claimants make essentially the same allegations as stated in Count I and claim that they are entitled to relief under 11 U.S.C. § 523(a)(2)(A). Section 523(a)(2)(A) excepts from discharge any debt:
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